A Sharpe-ratio-based measure for currencies

A. Javier Prado-Dominguez and Carlos Fernández-Herráiz
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Carlos Fernández-Herráiz: CAIA

European Journal of Government and Economics, 2015, vol. 4, issue 1, 67-75

Abstract: The Sharpe Ratio offers an excellent summary of the excess return required per unit of risk invested. This work presents an adaptation of the ex-ante Sharpe Ratio for currencies where we consider a random walk approach for the currency behavior and implied volatility as a proxy for market expectations of future realized volatility. The outcome of the proposed measure seems to gauge some information on the expected required return attached to the “peso problem”.

Keywords: sharpe Ratio; peso problem; carry trade; currency strategies (search for similar items in EconPapers)
JEL-codes: G11 G13 G15 G17 (search for similar items in EconPapers)
Date: 2015-06
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